It finally happened. Despite a stock price that is through the roof (but dropping as of this writing), Exxon (XOM) is reporting that second qaurter earnings are down. Indeed, Big Oil companies like Exxon and Chevron (CVX) are finding all sorts of competition to reduce their oil exploration territory. And one of the big players is China. MarketWatch explains how state-owned oil companies, along with increased demand and global instability, are starting to stymie the growth of Big Oil:
The search has taken China to Latin America, where it is fast-becoming a player in a region once dominated by U.S. oil companies. At the same time, Exxon last month decided to exit Venezuela rather than bow to government pressure to hand over majority control of its oil projects there to state-run Petroleos de Venezuela SA.
All this means Big Oil's romping ground is shrinking. The "easy" oil is long gone, the rest is getting harder to find, and competition for it is tougher than ever.
So what does this mean for investors? Well, in the short term these sorts of things tend to put pressure up on prices, which means that stock shares are likely to remain high for now. However, this arrangement won't last forever. Eventually losses will catch up to Big Oil, and the higher prices won't be able to keep the stock relatively high. So, as Wall Street loses some of its optimism toward the oil sector, it is time to consider other alternatives. It could be important to focus on Big Oil companies that invest in a variety of energy alternatives in the long term rather than on oil exclusively.
Disclosure: I own none of the stocks listed above.